“I Do”: When Married Couples Are in Business Together

4 tax implications of working with your spouse

A man's hand outstretched with his palm facing upward. A woman's manicured hand resting on top of his with their palms touching.
March 26th, 2017
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I used to visit a very famous Chinese restaurant,

Fu Manchu on Miami Beach, which was owned by two couples.The husbands were the chefs and the wives took care of the front of the house. Once in awhile, other family members worked there too. Back then, I was a young CPA, who loved to eat Chinese food, at this family-run restaurant.

The couples no longer own the restaurant, but I recently drove by there and it reminded me to share some important tax information for married couples who work together.

One of the benefits of operating your own business is the ability to hire family members. But here are 4 more tips to consider when thinking about hiring your family members or spouse:

  • WHO’S THE BOSS? – If you have a family-owned business, it’s important to distinguish, who is the boss? According to the IRS, if you operate your business as a married couple, your spouse can still be considered an employee if you have an employer/employee relationship. This means one spouse substantially controls business management, operations and decision-making and the second is under the control or supervision of the first spouse. If the second spouse has an equal say in all business matters, then it is considered a partnership relationship.
  • TAX LIABILITY – A spouse who is considered an employee is subject to income tax and FICA, aka Social Security and Medicare, withholding. If both spouses are considered partners, then business income needs to be reported as a partnership by using  Form 1065, U.S. Return of Partnership Income.
  • PARTNERSHIP VS. JOINT VENTURE – It may seem like semantics, but there is a difference in your tax liability if you’re a married couple, who run their business as a joint venture, rather than a partnership. According to the Small Business and Work Opportunity Tax Act of 2007, married couples who run a joint venture can file a joint return, but split all income, gains, losses, deductions and credits, then file a Schedule C. Confused? Bottom line is that filing your taxes as a joint venture doesn’t increase a business’ total tax on the return and gives a couple better tax credits. Call or email us for more details.
  • MEDICAL BENEFITS – If your spouse is considered an employee, you can pay his or her health insurance plan without having your payments considered Social Security, Medicare and Federal Unemployment Taxes (FUTA) or federal income tax withholding. This exclusion also applies to qualified long-term care insurance contracts.

There are some benefits to saying “I do” in life and in business. When it comes to taxes, ask your accountant or bookkeeper for suggestions to save on your joint tax return, especially if you and your spouse are in business together. If your bookkeeper isn’t forthcoming or doesn’t have any ideas, then feel free to reach out to me or anyone on the Brigade Bookkeeping team for help. We’ll find the best way for you to file your taxes and then after you’ve saved money or get a nice return, we’ll go out for Chinese!

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